6 Financial analysis and ratios vocabulary

Techniques for evaluating financial statements to assess a company's performance.

liquidity ratio – a measure of a company's ability to meet short-term obligations.

current ratio – current assets divided by current liabilities.

quick ratio – (current assets minus inventory) divided by current liabilities.

profitability ratio – a metric assessing a company's ability to generate profit.

gross margin ratio – gross profit divided by net sales.

return on assets (ROA) – net income divided by total assets.

return on equity (ROE) – net income divided by shareholders' equity.

operating margin – operating income divided by net sales.

working capital ratio – another term for current ratio.